KLA Corporation (NASDAQ:KLAC) Exceeds Q1 Expectations, Next Quarter Sales Guidance Is Optimistic

Max Juang /
2024/04/25 4:18 pm EDT

Semiconductor manufacturing equipment maker KLA Corporation (NASDAQ:KLAC) reported Q1 CY2024 results topping analysts' expectations, with revenue down 3% year on year to $2.36 billion. Guidance for next quarter's revenue was also optimistic at $2.5 billion at the midpoint, 2.8% above analysts' estimates. It made a non-GAAP profit of $5.26 per share, down from its profit of $5.49 per share in the same quarter last year.

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KLA Corporation (KLAC) Q1 CY2024 Highlights:

  • Revenue: $2.36 billion vs analyst estimates of $2.32 billion (1.7% beat)
  • EPS (non-GAAP): $5.26 vs analyst estimates of $5.06 (4% beat)
  • Revenue Guidance for Q2 CY2024 is $2.5 billion at the midpoint, above analyst estimates of $2.43 billion
  • Gross Margin (GAAP): 57.9%, down from 58.7% in the same quarter last year
  • Inventory Days Outstanding: 275, down from 283 in the previous quarter
  • Free Cash Flow of $838.2 million, up 53.7% from the previous quarter
  • Market Capitalization: $88.79 billion

"KLA's March quarter results were above our adjusted guidance as customer demand and company execution tracked consistent with our expectations," said Rick Wallace, President and CEO of KLA Corporation.

Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ:KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

KLA Corporation's revenue growth over the last three years has been mediocre, averaging 16.1% annually. But as you can see below, its revenue declined from $2.43 billion in the same quarter last year to $2.36 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

KLA Corporation Total Revenue

Even though KLA Corporation surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 3% year on year. This could mean that the current downcycle is deepening.

KLA Corporation looks like it's on the cusp of a rebound, as it's guiding to 6.2% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 10.8% growth over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

KLA Corporation Inventory Days Outstanding

This quarter, KLA Corporation's DIO came in at 275, which is 62 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from KLA Corporation's Q1 Results

We enjoyed seeing KLA Corporation exceed analysts' revenue and EPS expectations this quarter, driven by better-than-expected performance in its semiconductor process control segment. We were also glad next quarter's revenue and EPS guidance were higher than Wall Street's estimates. Management noted it expects business momentum to continue throughout the year as it reiterated that market conditions have stabilized over the last few quarters. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 1.1% after reporting and currently trades at $681.8 per share.

KLA Corporation may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.